Outstanding AD&C Loans Drop to $469.1 Billion as Builder Credit Tightens

United States, September 26, 2025

News Summary

Federal data show outstanding acquisition, development and construction (AD&C) loan balances fell to $469.1 billion, marking a sixth consecutive quarterly decline and a 5.3% drop year-over-year. The fall was led by reductions in other real estate development, while 1–4 family construction and land development balances stood at $89.8 billion, about 56% below the long-run peak. Reported delinquencies eased to roughly $1.1 billion (about 1.2% of the 1–4 family construction stock). With banks pulling back, builders are increasingly turning to private lenders, equity partners and institutional capital amid tighter underwriting and higher upfront requirements.

Construction lending tightens as outstanding AD&C balances fall to $469.1 billion in Q2 2025

Key point: New industry data show credit for builders tightened in the second quarter while the total amount of acquisition, development and construction (AD&C) loans on bank balance sheets continued to shrink. Federal data put the outstanding AD&C stock at $469.1 billion in Q2 2025, marking the sixth straight quarterly decline and a year-over-year drop of 5.3%.

What fell and by how much

Bank-level data show the drop in AD&C lending was driven mainly by declines classified as other real estate development, which totaled $379.3 billion and fell 2.3% from the prior quarter. The outstanding balance of 1–4 family residential construction and land development loans stood at $89.8 billion in Q2 2025, down 2.0% from a year earlier and down a modest 0.3% from $90.0 billion in Q1 2025.

Builder credit is tightening

A separate sector survey of builders showed increasingly tight credit conditions in Q2, reflecting smaller loan books and stricter underwriting at many banks. Lenders and industry participants report that banks have pulled back from construction exposure amid higher regulatory capital costs and a shifting appetite for development risk. That pullback has left a larger role for alternative capital sources in recent years.

Delinquencies and nonaccruals remained low

As the stock of outstanding 1–4 family construction loans fell, so did late payments and loans placed on nonaccrual. Total past-due and nonaccrual balances for 1–4 family residential construction loans were about $1.1 billion in Q2 2025, down from $1.2 billion the quarter prior. That amount represented about 1.2% of the 1–4 family construction loan stock. Loans in nonaccrual status totaled roughly $572.1 million, while loans 30–89 days past due were around $469.2 million.

Data limits and historical context

It’s important to note that the bank data measure the stock of outstanding loans — the balances that remain on books — rather than the flow of new loans originated during the period. That makes the figures an imperfect guide to how many newly approved loans are being made today. Still, the long view shows lending is much lower than in past cycles: the existing 1–4 family residential AD&C loan balance is roughly 56% below the peak level of about $204 billion reached in Q1 2008.

Alternative capital and institutional interest

With banks stepping back from construction exposure, institutional capital and private lenders have moved in to fill financing gaps. One institutional finance platform recently announced it secured capital to originate up to $1 billion in multifamily construction loans and has closed several billion dollars of loans year-to-date, indicating rising investor appetite for asset-backed construction credit. These institutional programs typically target larger projects, offer higher loan-to-cost ratios in some cases, and price loans based on property fundamentals and sponsor track record.

What borrowers should know about construction loans

Construction lending differs from a standard mortgage. Typical construction financing covers land, permits, labor and materials, and lenders release funds on a draw schedule as building milestones are met. Common loan types include short-term construction-only loans, single-close construction-to-permanent loans, government-insured construction options, and renovation-specific products. Many lenders start construction loans with interest-only payments during the build phase and then convert to a permanent mortgage or require refinance at completion.

Borrowers usually must submit detailed plans, contractor agreements and budgets as part of underwriting. Typical underwriting focuses on cost realism, scope and timeline, and many lenders expect higher up-front funds and stronger credit profiles than for a standard mortgage. To improve chances for favorable terms, borrowers can strengthen credit, increase down payment, and shop multiple lenders.

Market takeaway

Bank balance sheets show a clear, ongoing contraction in AD&C lending and tightened builder credit conditions. At the same time, delinquencies remain low for 1–4 family construction loans. The net effect is a market where fewer banks are originating construction loans, institutional lenders are stepping in for larger or more complex projects, and builders face a tighter finance environment that could slow starts or push projects to alternative capital.

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Key figures at a glance

This article summarizes recent industry and bank balance-sheet figures on acquisition, development and construction lending and provides context on credit conditions and financing options for construction projects.

Deeper Dive: News & Info About This Topic

Additional Resources

• Bankrate — Best Construction Loan Lenders
• Wikipedia: Construction loan
• BusinessWire — Dwight Secures Capital to Originate $1 Billion in Multifamily Construction Loans
• Google Search: Dwight secures capital originate $1B multifamily construction loans
• Investopedia — The Best Construction Loan Lenders
• Google Scholar: construction loan lenders institutional construction finance
• Forbes Advisor — Best Construction Loan Lenders
• Encyclopedia Britannica: construction loan
• CoStar — US Hotel Construction Lending Remains Tight Despite Interest Rate Drops
• Google News: construction lending Q2 2025

Author: Construction NY News

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